![]() ![]() We already know for a fraudulent conveyance that “avoid any transfer” is very broad, from the definition above. There’s a section that says the trustee can avoid any transfer if there was actual intent to hinder, delay or defraud. There are two main parts of Section 548 of the Bankruptcy Code that apply. This federal fraudulent transfer bankruptcy law goes back two years. The federal fraudulent transfer bankruptcy law is codified in 11 USC 548, which is conveniently titled “fraudulent transfers and obligations.” The trustee has the power of the federal strongarm clause of 11 USC 544(a). In bankruptcy, the definition of “transfer” is extremely broad. If you had it or could have had it (interest in property), and now you don’t, that’s a transfer. In law, things rarely get more comprehensive or all-inclusive than that. It “literally encompasses ‘every’ mode of parting with an interest in property.” Matter of Besing, 9 (5th Cir, 1993). Skipping some obvious parts of the definition, let’s go to the part that comes up most often: “each mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with property or an interest in property.” 11 USC 101(54)(D). In bankruptcy, the definition of “transfer” is defined extremely broadly. To start, what is the definition of transfer in bankruptcy? As a result, if you’re in a different state, you’ll need to research that state’s statutes. Next, since I’m a California bankruptcy lawyer who only files bankruptcy cases in California, this discussion will focus on California state law. ![]() The trustee’s rights in these actions are by state law. What do the laws say? The fraudulent transfer lawsįirst, there are multiple laws in play that impact bankruptcy. The logic behind these fraudulent transfer laws is to have the long arm of the law be able to reach something you gave away beforehand, and to right a wrong. The FBI investigates bankruptcy crimes like hiding assets, and people really do go to jail for lying under oath in bankruptcy. You need to tell the truth and disclose the thing you transferred. Then, at the 341a Meeting of Creditors while being recorded, under oath, you’ll be asked if you gave away, sold or transferred anything worth more than $2,000 in the last four years. Remember, you’re signing these papers under penalty of perjury. While the thing is no longer your asset, there’s a place in the bankruptcy papers you must disclose all recent transfers you made. You transferred it to hinder giving it to your debts. Why? For exactly the reason you gave it to your friend. The Chapter 7 bankruptcy trustee can go and get that car. ![]() Now, when you file bankruptcy, you don’t have a car to list as an asset, because “it’s all gone.” Problem solved, right? Wrong. Consequently, you gave it to your best friend. Further, let’s pretend you knew you’d lose that car in the bankruptcy. ![]() What if the day before you filed bankruptcy, you owned a paid-off Lamborghini car worth $500,000. Next, now let’s pick a ridiculous example. A Chapter 7 trustee can take your things and sell them and then use that money to pay some or all of your debt. Yes, there are exemptions that can protect some stuff, but often, not all. Liquidation bankruptcy is Chapter 7, and it does take things. Chapter 7 bankruptcy can take some of your stuff and pay back some of your debts with it. What is the logic behind the fraudulent transfer laws?įirst, let’s go back and look at the big picture. Quite simply, a fraudulent transfer is something you give or a conveyance before filing Chapter 7 bankruptcy which the bankruptcy trustee can take. What is a Fraudulent Transfer or Voidable Transfer? A trustee can avoid the transfers, causing real trouble for you and the person you gave it to. It’s also called a Fraudulent Conveyance.
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